Startups find a place in West Michigan, despite cultural challenges

From the cannabis industry to beverage manufacturers to tech-focused firms, West Michigan continues to see an uptick in startups.

MiBiz convened a group of startup entrepreneurs from around the region to discuss what’s working here and what’s not working. For some, access to capital and needed mentorship stand out as issues. Others say that the region’s infamous “West Michigan nice” forced friendliness creates hurdles. Nonetheless, all see the opportunity for growth in the area.

There’s a story behind every startup and why it launched. Why did each of you see the need for your business?

King: I knew that I wanted to start some kind of a public relations firm, some kind of my own business for the last few years of my career. I was listening to a story on NPR, and they were talking about the cannabis industry and talking about how big it was growing and what it was doing. I thought, ‘Yeah, that’s it. That’s the thing that I want to be involved with.’ It was kind of revolutionary, it was kind of badass. I just wanted to do something that was totally not … my normal. For 30 years, I worked in PR for a good, high-quality nonprofit. (The question for me was) what can I do that’s going to rock that boat and challenge myself to do something I’ve never done before and learn about an industry that I knew nothing about. I knew that businesses were making money at it, and where business are, there’s a need for communication.

Rodriguez-Garcia: I started this company a few years ago based on a business trip and the lack of diversity in the coffee (industry), especially in the cold brew coffee companies regarding flavors and representation of different parts of the world. There are many different cultures and flavors. … I grew up in Grand Rapids. I went to school for engineering here at Grand Valley State University. I’m an engineer as well, with a passion for coffee. From being in Grand Rapids, I learned a little bit about small business. … Coming from Mexican heritage, people go to corner stores and sell their products randomly, saying ‘Hey, you want to buy this? You want to buy that?’ That’s something that I’ve seen Grand Rapids is very welcoming to. And there’s a lot of support in the community just to help a lot of minority businesses to go to the next step.

Green: We came out in February of this year, and we have good month-over-month sales increases. We sell at local farmers markets in the area and through our social media accounts. We’ve been doing good, and we’re looking to actually put in retail space after the first of the year. With the whole announcement in May about how (the state is) classifying CBD, we have to hang under the radar a little bit, but we have great word-of-mouth sales. (Editor’s note: The Michigan Department of Licensing and Regulatory Affairs classified CBD oil made from marijuana as marijuana.) I actually ship all over the country, just from friends and family referrals. We run very low profit. I would say it’s almost a nonprofit. I started doing this because my dog started having seizures and I got him on CBD for that. Just seeing the cost of it, and seeing how a lot of companies are basically marking it up like pharmaceuticals, I wanted to offer an affordable option to people.

Baxter:My business is called Wedge. It’s a video interviewing platform for companies and it’s a video resume platform for job seekers. We serve two very different markets. One is so companies can use it as part of their hiring process, and the other is a tool that job seekers can use to market themselves online. It’s a web-based tech startup. I’m originally from Ann Arbor, and went to Hope (College). Hope brought me here, and I stuck around since. I ran a lawn care company through high school and college, which was sort of the spur of the idea of doing hiring through that. Then I had a chance to actually sell the lawn care company. I was like, ‘All right, what’s next?’ It kind of went from there. We’re based in Holland, we work out of a workspace down there. There’s four employees. We’re actually finishing up a capital raise right now, so we’re probably looking to double in size in the next three to six months.

Capital is obviously a top priority for any growing startup. What are each of you seeing out there?

Green:Really for anything in the cannabis industry, you can’t get a bank loan. You have to go alternate routes. I was able to fund this myself, so that helped. I’m a one-woman show right now. Expanding into retail space, actually having to hire people, it’s going to be another story.

King: With cannabis, and not to my business specifically, but to the people that I work with, that is a matter of connections with people who want to be private investors in this and finding qualified investors. It’s complicated for somebody who’s a caregiver or a small grower right now and wanting to expand and wanting to become a fully licensed grower. … There’s a lot of people (who say,) ‘I would like to get into that.’ If you want to be licensed by the state … you need to walk in with $1 million. That’s just the bottom line because it’s a complicated business to be in. Nothing is more heavily regulated than cannabis. I mean not liquor, not casinos, not tobacco.

Green:I have a few people that have offered (to fund me). It’s like, ‘Yeah, when I get there, when we get to that stage.’ I think with a lot of cannabis businesses, you’re walking into the unknown right now in Michigan. You don’t know one day if you’re operating, and then one day you can’t.

For Roberta: What are the needs for a communications company that’s not as capital-intensive?

King: In cannabis, it’s a real lack of networking and connections, because everybody was so underground for so long and everybody was hunkering down. People knew people and there’s definitely a number of closed Facebook groups that people are in and you can meet and talk to people like that. But there’s never been the LinkedIn for it, or those kind of connections that you get otherwise — the right kind of networking. Where are you going to find those people? That is the most challenging thing.

Given the various stages of your companies, what do you need that would help you grow?

Green: Right now: time — more time in my day. I’m at the point where I’m looking at getting an assistant or something like that just to do the work, or do the little things. That would be nice.

King: We’re looking for some business coaching. I think that’s one of the things that we need. We just need to make a little more money in order to afford the coach and pay for it. But a business coach would be great. Somebody to help us do what we’re going to do, help us meet clients and get out and do that. Because Michigan is in this crazy flux with medical licensing right now, (it’s all about) trying to find businesses that you want to work with. It’s more of a business coach in public relations and marketing that can help us with those challenges that we face with securing clients or writing proposals.

Rodriguez-Garcia: There’s a huge learning curve. I sometimes wish we had … someone helping (us) out, maybe freelancers here and there. (It’s) not somebody that will be on payroll, just as a contract. For me, I’m just going to do it myself because first of all, I don’t have the time or the knowledge to go through that process. I’ve been working with an organization, Start Garden, who has been helpful in finding some mentoring programs and individuals, but that only goes so far.

What other challenges are you finding as you try to scale up your businesses?

Rodriguez-Garcia: It has to do with a lot of the education around cold brew coffee. (Customers think) it’s just coffee. Well, it’s not just coffee. It goes beyond … it doesn’t even taste like coffee. It tastes like it came from Mexico. But we go beyond with how we sell our product. What does it mean every time you have a cup of our product, and what are you representing there as well?

King: Selling something with that extra mission, there’s a certain consumer that wants that sort of mission-driven product, something that goes beyond and helps people. Other people just don’t care. How do you find those people that are really mission driven and will buy that thing because it helps a good cause? I think that’s a good (thing).

Baxter:Somebody probably two years ago said to me that the majority of my role in a tech startup will be half running the business and half raising the capital. At first I was like, ‘Man, that’s nuts. I can’t believe somebody actually believes that to be true.’ And it’s probably 70 percent raising capital and 30 percent (running the business). That’s the irony behind it. It’s just interesting how you have a lot of conversations with people who say the focus is raising capital, raising capital, raising capital, and then once you get the capital, your life’s over. You’ve done everything you needed to. Realizing that we’re almost done with that round, now we can run a business with it. We’ve gotten really fortunate with getting in the right crowd of people.

How does this area stack up as a place to raise capital for startups?

Baxter:My biggest frustration with raising capital in this area is that there’s a lot of people who love the idea of raising capital, but aren’t really willing to pony up money even though they are investors. We had an outside lead from the Boston area who was our original investor. That lead has allowed me to generate more capital here. … There’s one well-known group that says once you have a quarter million in revenue, then we’ll fund you. It’s like, ‘No offense, but at that point, if I raise it that quickly, I might as well go to a bank.’ I don’t need some VC coming in taking a large chunk out of my business at that point.

What about investors’ appetite for risk?

Baxter: It’s a very risk-averse area, which is good, but doesn’t foster (startups). … I think there needs to be a pretty substantial exit of a company in the area to inspire other people to say, ‘Oh, if we jump into early-stage companies, one of these might do really well, too.’ That’s something that I’ve been thinking through a lot. As far as our own company needs, it’s now taking a substantial capital raise, which is really exciting, but actually going and doing something with it.

Rodriguez-Garcia: I think one of the biggest things is … you had to go outside Michigan to get a lead to come back in just to get funded. You’re not the first story that I have heard who has done that here. … A company that was here, they had to go to New York to get funding and then came back. We’re not talking such high amounts. These are small businesses like us. Initially, the only way we got any money was $5,000 through Kiva Loans.

Are you talking about a micro-lending program?

Rodriguez-Garcia: A micro-lending (loan) with no interest. They really helped us out for Soldadera Coffee. But when we went with something that was not Soldadera Coffee, they rejected it as well. It’s very tricky to raise funding in Michigan unless you have connections.

How important is timing in each of your companies?

Baxter: Timing-wise, I think if it had been five years earlier, we would’ve been too early. (People would have said), ‘Oh man, this is a cool concept, but it’s way beyond us.’ There have been a couple of companies that have tried the video interviewing space in a much different way. But there’s companies, progressive companies around here, who tried it five, 10 years ago and said it was just way too complicated. We built our tool with the intention of it being so simple that literally anybody can (use it). It takes five minutes. You can either create a set of questions or create your video. … A lot of people love it, a lot of people love the concept, a lot of people see the value, but then it’s, ‘OK, now actually go use it.’ Overall, with the HR industry in general, one of the biggest headaches is adoption.

King: They’ve done things the way they’ve done it for decades. Making change is difficult in that environment. The one good thing is that a new generation of people are coming into technology, so they’re going to be more receptive to that.

Baxter: It’s also interesting (offering) a tool that there wasn’t really a replacement for. There’s not something we are necessarily replacing. So Troll Meds is a great example. If your back hurts and you’ve taken Ibuprofen and it doesn’t work, you might try CBD. That’s a clear replacement. Where we’re coming in, there isn’t a replacement for video interview. … (The question we get is) what are we replacing, what are we pulling from, or adding something new, or whose job is it to actually facilitate that. There’s no guidebook for us. That’s the tough part. We don’t have a mentor to come in. There are people that have had to pave the way in their own tool or product. That’s been a headache and will continue to be for a long time. How do you navigate the waters and integrate something that has an adoption sequence?

King: That whole timing thing: I really felt this in cannabis when I launched the business 15 months ago. I knew that Michigan was going to go into licensing its businesses, they were going to start in December. I honestly thought by March or April that there would be hundreds of licenses. (Instead) there’s 22 businesses (and) 12 dispensaries. So it’s timing, but I needed to be on the ground. I needed to be in the cannabis space, I needed to be working whatever little networks I could connect with in order to be ready for whenever this was going to happen.

Rodriguez-Garcia: For us, it’s been more of what’s been happening socially. I see coffee as more of a higher-end item, and that’s what we’ve been waiting on.

West Michigan is known for being entrepreneurial while also having that characteristic ‘West Michigan nice’ culture. How do those two things play out with startups?

Baxter: What I’ve learned is if I’m going into a conversation, there is an element of that. I need to get past the West Michigan nice. ‘If you only sort of want to help me, let me know.’ I’m super passive with my ask. (I prefer) to be like, ‘Here’s what I want and if you can’t do it, do you have someone who could help me?’ Or it’s: ‘This is something I need and (there are people) who can direct me there.’ It’s just a personality shift. I want to be super kind, but I can have 100 conversations with people. It’s just being clear. Whether you need $5,000 or $5 million, it’s saying, ‘This is what I need. Can you help me get there? Not even necessarily investing, but can you (offer some advice)?’ I think you can be direct and kind at the same time.

Rodriguez-Garcia:From a minority standpoint, I didn’t realize it. My wife said, ‘You know it’s a West Michigan thing?’ I asked, ‘What do you mean by that?’ I thought everyone was just nice like that. I haven’t gotten to the point that you have, being straight out while being nice. It’s very difficult. For me, it’s (figuring out) how am I supposed to do that type of conversation with somebody. Am I being too rude?

King: Somebody will come to us and have a meeting, talk to us about what’s going on in their business. ‘I would really like this. It would be great to work with you.’ It’s always a nice time. After a couple of hours and we put together a nice proposal for them, I always send it to them and they totally ghost us.

If each of you had a crystal ball, where do you see your businesses in six months or a year?

King: We’re going to be huge, but it won’t be because of West Michigan. If you look at the map of the municipalities that have opted in for cannabis, I need to go where that is. … Had I known that Bay City would be the hotbed of cannabis, I would’ve maybe established myself in Bay City or Lansing or Ann Arbor. I have to go where business is.

Baxter: For our business, whether we get around to funding or maybe just continuously grow, our immediate growth strategy is targeting career service centers for high schools. We’re going after recent grads from colleges and then also just servicing fast-growing companies in the 500-employee to 1,000-employee range. Great people want great companies to work with. Company-wise, having a continuous footprint in the greater Holland and Grand Rapids area is a huge focus. We’re looking to hire three to five more people pretty quickly, which is fun, stressful and exciting — all at the same time.

Green: In six months to a year, I hope I have a retail space or I’m in the process of getting licensed or both. I hope I have some sort of staff by then. Our goal is just bring in some people at an affordable price. For a 300 mg bottle of CBD oil online, you’ll pay $60 or $70. Mine is $15. I negotiate with people on the cost of my raw materials and I’m able to get that good of a deal where I can do that good of a price break and still come out ahead. We do make profit, but obviously, a lot of it is going right back into the business. I just hope we’re still operating.

Rodriguez-Garcia: In six months to a year, what we’re shooting for is adding to our line of products. We need to be able expand to an actual location where we can actually produce or cold brew there and do the manufacturing ourselves to be able to take over Grand Rapids and Detroit. That’s our first-year target goal. We’ve already got into the Bridge Street Market. … It’s all about growth for us right now, and how fast we can go. That’s the fear, but that’s something that I’m pushing for: Just go as fast as you can — sell fast and move fast.